1A contravention of the rules in this chapter does not give rise to a right of action by a private person under section 150 of the Act (Actions for damages) and each of those rules is specified under section 150(2) of the Act as a provision giving rise to no such right of action.
PRU 1.2 applies to managing agents and to the Society in accordance with:
for managing agents, LLD 16.3.3 R; and1
1for the Society, LLD 16.3.1 R.
LLD 18.2.7 R applies to members, pursuant to the insurance market direction in LLD 18.2.5 D.
The insurance market direction in LLD 18.2.5 D is given under section 316(1) of the Act (Direction by Authority) and applies to members.
The purpose of the insurance market direction in LLD 18.2.5 D is to enable the FSA to make the rule in LLD 18.2.7 R applying to members, in order to:
protect policyholders against the risk that members may not have adequate financial resources to meet liabilities under or in respect of contracts of insurance as they fall due;
promote confidence in the market at Lloyd's by requiring members to maintain financial resources which are adequate to meet their liabilities.
With effect from 1 January 2005, Part X of the Act (Rules and Guidance) applies to the members of the Society taken together in relation to the insurance market activities of effecting and carrying out contracts of insurance written at Lloyd's, for the purpose of applying the rules and guidance in LLD 18.2.7 R to LLD 18.2.9 G.
Part X of the Act is a core provision specified in section 317(1) of the Act (The core provisions). Section 317(2) provides that references in an applied core provision to an authorised person are to be read as references to a person in the class to which the insurance market direction applies. From 1 January 2005, references in Part X of the Act are to be read as references to members for the purposes of LLD 18.2.7 R to LLD 18.2.9 G.
The members taken together must at all times maintain overall financial resources, including capital and liquidity resources, that are adequate, both as to amount and quality, to ensure that there is no significant risk that liabilities under or in respect of contracts of insurance written at Lloyd's will not be met as they fall due.
Under PRU:
managing agents must ensure that adequate financial resources are available to support the insurance business carried on through each syndicate that they manage; and
the Society must, having regard to the availability and value of the central assets, ensure that the financial resources supporting the insurance business of each member are adequate at all times.
In practice compliance with the requirements described in LLD 18.2.8 G are likely to have the effect that members comply with LLD 18.2.7 R.
PRU 1.3 applies to managing agents and to the Society in accordance with:
for managing agents, LLD 16.3.3 R; and
for the Society, LLD 16.3.1 R.
When recognising and valuing assets that are available to meet liabilities arising from a member's insurance business, neither the Society nor managing agents may attribute any value to any amounts receivable but not yet received from that member or another member, except for:
timing differences provided that a corresponding amount has been deducted from syndicate assets or funds at Lloyd's;
the Society's callable contributions, which are valued according to LLD 18.3.10 G to LLD 18.3.12 R; and
debts owed by a member to another member of the Society where the debt is a liability arising out of the insurance business he carries on at Lloyd's.
Letters of credit, guarantees and life assurance policies are admissible assets in respect of insurance business at Lloyd's and qualify as capital resources under PRU 2.2, subject to LLD 18.3.4 R to LLD 18.3.9 G.
When recognising and valuing assets held as members' funds at Lloyd's the Society may, if the conditions in LLD 18.3.5 R are satisfied, attribute a value to letters of credit and guarantees that it holds in respect of a member's insurance business.
The conditions referred to in LLD 18.3.4 R are that letters of credit and guarantees must be:
in the form prescribed by the Society from time to time and notified to the FSA; and
issued by a credit institution or an insurance undertaking.
When recognising and valuing assets held as members' funds at Lloyd's the Society may attribute a value to verifiable sums arising out of life assurance policies.
If a member relies on a value attributed to a letter of credit or guarantee to meet any applicable capital resources requirement and that letter of credit or guarantee will expire in less than one month, the Society must take appropriate steps to ensure that the applicable capital resources requirement will continue to be met, including taking steps to ensure that sums due under the letter of credit or guarantee are drawn down when due and carried to the appropriate Lloyd's trust fund.
In LLD 18.3.8 R, the expiry date includes the date on which the instrument will terminate if not renewed, and the date on which any notice to terminate will or would take effect.
Under LLD 19.3.7R (2) and LLD 19.3.9 R, the Society may recognise and value callable contributions in its calculation of its own capital resources. LLD 18.3.11 R specifies the maximum value that may be attributed to callable contributions.
For the purposes of LLD 19.3.7R (2) and LLD 19.3.9 R, the amount assumed to be callable from a member must not exceed the lower of:
the maximum callable contribution that member is or may be liable to make in that financial year; and
the amount by which the member's own capital resources exceed the member's own capital resources requirement.
The Society must value callable contributions taking appropriate account of any legal, constructive or other limits on its ability to call for contributions from members or to realise the amount called.
The Society must give the FSA adequate advance notice if it proposes to change the maximum amount of the callable contribution that members may be liable to make in any financial year.
The FSA would normally expect not less than six months' notice under LLD 18.3.13 R.
Subject to LLD 18.3.16 R, the Society must recognise and value all of a member's liabilities in respect of its insurance business.
The Society need not recognise or value a member's liabilities that are recognised and valued at syndicate level by managing agents in accordance with PRU 1.3.
For the purposes of calculating a member's capital resources, when valuing a member's funds at Lloyd's the Society must deduct the value of a member's liabilities determined under LLD 18.3.15 R.
The liabilities to be valued under LLD 18.3.15 R and deducted under LLD 18.3.17 R include:
amounts owing to members' agents;
amounts owing to the Society;
an appropriate accrual for tax payable on any profits;
(where required under any applicable accounting principle in accordance with PRU 1.3.5 R), any contingent liability relating to liabilities reinsured into Equitas Reinsurance Ltd; and
amounts apportioned to members in respect of the credit equalisation reserve under PRU 7.5.
In recognising and valuing a member's liabilities, the Society and managing agents may, to the extent permitted by applicable accounting principles, leave out of account the liabilities in respect of 1992 and prior general insurance business reinsured by Equitas Reinsurance Limited.
There may be contingent liabilities associated with the reinsurance into Equitas. PRU 1.3 requires managing agents and the Society to treat those contingent liabilities in accordance with applicable accounting principles: see PRU 1.3.5 R. Depending on the circumstances, managing agents or the Society may need to disclose or account for such a liability.
Subject to LLD 18.4.2 R, PRU 1.4 applies to managing agents and to the Society in accordance with:
for managing agents, LLD 16.3.3 R; and
for the Society, LLD 16.3.1 R.
The requirement in PRU 1.4.18 R to take reasonable steps to ensure the establishment and maintenance of a business plan does not apply to the Society.
